24 March 2012
By Nita Clarke, director, IPA
‘It seems to us that to regard the company as solely the property of shareholders is to be out of touch with the reality of the present day company as a complex social and economic entity, subject to a variety of internal and external pressures, in which the powers of control have passed from the legal owners to professional management.’
Not, as you might think, a contribution to the current debate on reforming capitalism which is taking up so many acres of newsprint, but a quote from the report of the Committee of Enquiry on Industrial Democracy of 1977, more commonly known from the name of its chairman as the Bullock Report.
Thirty five years on, many of the key issues discussed in the report – the role of employee involvement, the importance of participative management, of building trust within organisations, the most effective style of relations between workforce and management, what the UK could learn from Continental models, particularly the German experience – are front and centre again, as we grapple with the on-going consequences of economic challenge from the continuing shadow of the financial crisis and the exponential growth in competition from globalisation.
Indeed, central to the current interest in employee engagement is a recognition of the vital importance of positive relations between a workforce and their organisation, based on a recognition of mutual interest and on trust and transparency, in delivering performance, productivity and profitability. And at the heart of such relationships lies effective employee voice, the very issue at the heart of the Bullock Report.
Those of us now sadly old enough to remember its publication will recall that the report’s recommendations for compulsory employee representation on company boards roused enormous controversy – and then sunk rapidly without trace. The only support for their central proposal came from the TUC – and even then a substantial body of trade union opinion including the electricians and the engineering union (now both part of Unite) and the General and Municipal workers union (now the GMB) remained implacably opposed because of the perceived threat to the independence of trade unions that board membership was thought to represent.’ It is not the job of unions to manage – but to oppose management,’ as one shop steward put it. The TUC was also implacably opposed to any representative route that might involve non-union members; under their proposals the union would be the single channel for electing board members.
Three employers on the commission put forward a minority proposal that would have seen worker representation on lower tier supervisory boards, but even this diluted suggestion failed to find favour with the CBI and wider employer opinion which regarded any compulsory worker representation as a threat to the sole principle of shareholder ownership and to the management prerogatives of the board.
The then Labour Government did produce a White Paper in May 1978, accepting the central Bullock analysis that ‘at company level there remains a major gap in the development of the employee role’, but its proposals for a wider discussion of models of participation fell off the agenda as the Social Contract with the trade union movement collapsed - and with the advent of the conservative Government in 1979 the opportunity for reform was lost for a generation.
The central challenge, of course, did not disappear. As the City Company Law Committee put it in their response to Bullock: ‘The more people are able to influence decisions which closely affect their work the more effective will that involvement be; the more effective the involvement the greater the commitment to the company’s objectives which, in the final analysis, will be concerned with generating wealth or services for the community as a whole.’
Nevertheless, particularly following the decline of trade union influence at company and organisation level as a result of the erosion of membership during the 1980s, the topic of employee participation was off the table. The opportunity for a new discussion on the merits of employee involvement did not arise again until the European Commission proposal for a Directive on information and consultation in workplaces in the 1990s.
The TUC General Secretary during the Labour Government’s first term (1997-2001) John (now Lord) Monks was particularly eloquent in his belief that the provisions of the new Directive would open the way more a more mature discussion about the advantages to companies of listening to collective workplace voices, not just negotiating with representatives on narrow pay and conditions issues.
Indeed the new regulations which came into force in 2004 seemed to pave the way for a new workplace relationship. Employers are required to inform and consult with elected employee representatives on the recent and probable development of the undertaking’s activities and economic situation, the probable development of employment within the organisation and anticipatory measures particularly where there is a threat to employment and on decisions likely to lead to substantial changes in work organisation or contractual relations.
The information needs to be given ‘at such time, in such fashion and with such content as are appropriate to enable, in particular, the information and consultation representatives to conduct an adequate study and, where necessary, to prepare for consultation.’ Additionally it needs to be provided ‘in such a way as to enable the information and consultation representatives to meet the employer at the relevant level of management depending on the subject under discussion, and to obtain a reasoned response from the employer to employees’ views.’ Crucially, on matters affecting redundancy or TUPE transfers, the consultation needs to be timely and carried out ‘with a view to reaching agreement on decisions within the scope of the employer's powers’.
No-one could call these provisions for information and consultation negligible. While they clearly do not have the force of a co-determination approach, a determined and representative union could clearly use the regulation to establish both a voice and a key stakeholder role within an organisation on vital strategic issues such as the future direction and economic challenge – and some have done so. Indeed a survey of UK operations of multinational companies found that the regulations had prompted substantial change in arrangements for employee consultation, with over 40 per cent reporting new or modified I&C arrangements over the previous three years. More information on the effectiveness of the regulations will come with the forthcoming publication of the Workplace Employment Relations Survey by the Department for Business.
Nevertheless, Professor John Purcell was surely accurate in his 2011 study in reporting that trade unions, which have no guaranteed rights in the regulations, have generally shown little interest in promoting the take up of employee rights in this area. ‘Unions’ priorities are the maintenance of collective bargaining arrangements where they exist and seeking trade union recognition. The union fear is that employers with I&C arrangements covering all of their employers will prefer such bodies to collective bargaining arrangements which typically only cover a proportion of the workforce’.
At the same time employers have, in general, similarly shown scant interest in the regulations. Many of the employers who have created an I&C body have done so outside the framework of the regulations by creating voluntary consultative forums either as ‘pre-existing agreements’ as defined by the regulations, or unilaterally, without the agreement of employee representatives or of employees via a ballot.
However in a significant speech in January, putting flesh on the bones of the Coalition’s approach to curbing excessive executive pay, the Business Secretary Vince Cable gave an important nudge to the regulations. He emphasised that under government plans, boards and remuneration will have to explain how they have consulted and taken into account the views of employees in setting executive pay rates – and suggested that information and consultation rights could be an important route.
‘Employees in large companies already have the right to set up information and consultation arrangements, allowing them to receive information and discuss issues about the company for which they work – including their bosses’ pay. This mechanism is not being extensively used at present and perhaps employees are unaware of it. I would encourage them to take this up and put executive pay on the agenda. Here is a useful mechanism that already exists and it is more practical and less problematic than trying to put worker representatives on boards.’
The wider discussion about the role of employee representation on remuneration committees and boards will surely continue – particularly since the make-up of boards is under more scrutiny than ever before, with issues such as gender balance the subject of national debate. Nevertheless, as well as providing a possible route for the legitimate challenge of egregious decisions on executive remuneration, the information and consultation regulations also represent a wider opportunity as part of the architecture for employee engagement in the workforce.
And that overall need for profound engagement in Britain’s workplaces becomes more pressing every day. As Bullock concluded 35 years ago, in words which resonate today:
‘The problem of Britain as an industrialised nation is not a lack of native capacity in its working population, so much as a failure to draw out their energies and skills to anything like their full potential. It is our belief that the way to release these energies, to provide greater satisfaction in the workplace and to assist in raising the level of productivity and efficiency in British industry – and with it the living standards of the nation – is not by recrimination or exhortation but by putting the relationship between capital and labour on to a new basis which will involve not just management but the whole workforce in sharing responsibility for the success and profitability of the enterprise.
‘Such a change in the industrial outlook and atmosphere will only come about, however, as a result of giving the representatives of employees a real and not a sham or token share in making the strategic decisions about the future of the enterprise which in the past have been reserved to management and the representatives of shareholders.’